Telephone and Cables Pty. Ldt., N. V. Philips Gloeilampenfabricken, Electric and Musical Industries Ltd. (owning Marconi's and other rights for Australia), Pye, Ltd. and Neutrodyne Proprietary Limited. Neutrodyne is a controlled subsidiary of Hazeltine; the latter company owns seventy percent of its stock. XXXIV. Under an exclusive license agreement dated September 11, 1928, but still in full force and effect, Neutrodyne is authorized to place all inventions and patents of Hazeltine into the Australian Pool and is required to see to it that all of the requirements, restrictions, and provisions of the standard package license of Hazeltine are contained in any pooling license issued thereunder. Sublicening rights, existing and future, under all of Hazeltine's inventions have been granted the Australian Pool under this arrangement for 35 years and have been the subject of the only form of license agreement issued by the Pool, a standard package license not referring to any particular patent or invention but to all of the rights of all the conspiring companies. A standard Pool license imposes the restrictions necessary to effectuate the division of territories involved in the overall arrangements. It requires the licensee to agree not to export or import or sell or offer for sale in Australia any radio or television receiving apparatus not manufactured in Australia. Hazeltine has been fully aware of the Pool's plan and policy not to license for importation and has cooperated with and approved the operation of the Pool with respect to all the Hazeltine Australian patents.

XXXV. The standard package form of Hazeltine license covering all patents subject to licensing by the Pool and requiring royalty payment whether or or not any such patent is used in the licensed apparatus, is employed by each Pool referred to in these findings and is also used by Hazeltine in the United States in order to prevent attacks by licensees on any of the patents of the participating companies in any of the markets covered by these findings.

Damages Sustained by Zenith

XXXVI. The foreign commerce of Zenith has been drastically curtailed by the patent Pools in England, Canada and Australia. The damages Zenith has sustained were estimated by experienced officials of Zenith, thoroughly familiar with the business problems and sales potentials in the markets involved. They determined the approximate damages sustained by a thorough study of each of the markets involved and all relevant factors including tariffs, shipping costs and manufacturing problems. Zenith's foreign commerce has been damaged by the Pools in the following amounts during the 4-year statutory damage period: Canada:

1. The court has jurisdiction to determine the antitrust issues under the provisions of the Act of Congress approved July 2, 1890, entitled "An Act To Protect Trade and Commerce Against Unlawful Restraints and Monopolies," commonly known as the Sherman Act.

Package Licensing

2. Plaintiff's demands on defendant coupled with the bringing of this suit and the threat to bring other suits on other patents constitute an illegal effort to coerce Defendant into signing the Hazeltine package license.

3. The policy of plaintiff, reflected in the demands made on defendant and action taken against it, was to grant no license unless under all of its hundreds of patents for a fixed royalty, is one of unlawful coercion contrary to public policy.

4. The reward sought by plaintiff from defendant for inventions to be licensed in no way related to the quality of the individual patents and under the package license each patent drew strength from the others, thus unlawfully extending the monopoly of each.

5. Plaintiffs' offer to license its patents individually but at royalty rates far in excess of the package rate was never an alternative to its controlling policy to grant defendant a license only under all of its patents. Rather, it was proposed by Hazeltine in the later stages of its negotiations in the instant case to cloak the harshness of the original demand by seemingly meeting the request of defendant in that regard. Although it may be said that the Hazeltine proposals on the surface were offers to treat of individual patents, the design was quite apparent-to force by unlawful coercion the acceptance of unwarranted patents. This constituted an illegal extension of the patent monopolies. Whatever may be the asserted reason or attempted justification of Hazeltine, its efforts to compel defendant to accept a package of patents involved the use of one patent or group of patents as a lever to compel the acceptance of a license under others. Such a licensing scheme under applicable decisions of The Supreme Court is illegal and constitutes a misuse of the patents involved.

VI. There is a further feature of Plaintiff's licensing practices that in and of itself constitutes an illegal attempt to extend the patent monopolies. The license agreement, whether it be under a single patent or under Hazeltine's entire patent package, requires the payment of royalties in large sums for a period of five years on the entire production of the licensee whether or not any licensed patent is employed in any way in the licensee's products. Plaintiff's demands that royalties be paid on admittedly unpatented apparatus constitute misuse of its patent rights and plaintiff cannot justify such use of the monopolies of its patents, by arguing the necessities and convenience to it of such a policy. While parties in an arms-length transaction are free to select any royalty base that may suit their mutual convenience, a patentee has no right to demand or force the payment of royalties on unpatented products.

VII. The defense of misuse asserted by defendant is a valid one.

The Patent Pools

VIII. Every act in furtherance of a general plan to restrain trade and commerce, foreign or domestic, in violation of the Sherman Act, is illegal regardless of whether such act or acts when standing alone and absent conspiracy could be found to be legal.

Conspiracy

IX. It is fundamental that an unlawful conspiracy may be and often is formed without simultaneous action or agreement on the part of conspirators. Acceptance of an invitation to participate in a plan, the necessary consequence of which. if carried out, is to restrain commerce, is sufficient to establish a conspiracy under the Sherman Act. Knowledge of a scheme that illegally restrains trade and participation in the plan with such knowledge is all that is required to establish a conspiracy under the antitrust laws and prior agreements need not be shown to have been made between each and all of the conspirators in order to establish a violation of the Sherman Act.

Purpose of Pools

X. The combinations represented by the patent pools in Canada, England and Australia had as their express purpose the prevention of importation into those markets of radio and television apparatus made in the United States and other countries. Hazeltine knowing of the restrictions against imports imposed by those Pools nevertheless chose to permit its patents to be used in furtherance of the scheme and thereby obtained a substantial share of the Pool's income. It thereby became a co-conspirator and legally liable for all the acts of the Pools and its members performed in furtherance of their patent licensing plan to divide markets and prevent competition from imported sets.

XI. Hazeltine's method of placing its patents in the foreign pools--the use of exclusive license agreements either directly with the Pool as in Canada or through a pool member, as in England, or through a subsidiary, as in Australiais the traditional means employed in the formation of illegal cartels and it is no defense to say that the particular exclusive licenses to which Hazeltine was a party did not in and of themselves impose the illegal restriction. The character and effect of a conspiracy are not to be judged by dismembering it and viewing its separate parts but only by looking at it as a whole.

Intent

XII. Hazeltine's defense that it had no intent to restrain trade and that it participated in the Pools for business reason has no legal validity. If good business reasons and expressions of good intent would serve as a defense for restraining trade, the Sherman Act would be rendered impotent and would afford no aid to the free flow of commerce.

Applicability of Sherman Act

XIII. Hazeltine's claimed defense that conspiracies by American companies with companies abroad are governed solely by foreign law and are not violative of the Sherman Act has no legal validity. It is well established that a conspiracy to restain the domestic or foreign commerce of the United States to which any American company is a party violates the Sherman Act irrespective of the fact that the conduct complained of occurs in whole or in part in foreign countries. XIV. By virtue of its arrangements in connection with the Pools in Canada, England and Australia, Hazeltine has violated Section 1 of the Sherman Act. XV. Counterclaimant has established that it has been injured in its business by virture of the unlawful conspiracy and acts performed in furtherance thereof. As a co-conspirator Hazeltine is liable for those damages.

XVI. Counterclaimant is entitled to the injunctive relief sought in the counterclaim.

INITIAL REPORT ON REVIEW ON ADMINISTRATIVE MANAGEMENT OF THE BALLISTIO MISSILE PROGRAM OF THE DEPARTMENT OF THE AIR FORCE BY THE COMPTROLLER GENERAL OF THE UNITED STATES-DATED MAY 19, 1960-REPORT No. B-133042 PP. 37-52

CONTRACTORS ARE LIKELY TO COOPERATE AND EXCHANGE INFORMATION MORE FULLY WITH A GOVERNMENT STAFF THAN WITH A POTENTIAL COMPETITOR

The fact that a private contractor functioning as systems engineer and technical director is a potential competitor tends to discourage participating contractors from providing the full cooperation in exchange of information considered so vital in the complex ballistic missile program. Even though the systems engineer and technical director may be barred under his contract from engaging in manufacturing activities in connection with the programs assigned to him, the likelihood that the know-how being developed may be used by him to compete for production in related fields and in future programs is a deterrent to full cooperation by the participating contractors. This handicap to complete exchange of information would be avoided if the systems engineering and technical direction were performed by a Government staff.

The need for closely integrated activities among contractors engaged in developing and producing components of a major weapons system is well recognized. In the highly complex Air Force ballistic missile program, involving numerous contractors engaged in concurrent development and production of several separate but related missile systems, the need for full cooperation and free exchange of information is even more important to progress under the program. The Secretary of the Air Force has stressed the need to have objective and disinterested technical advice in order to give everyone concerned in the program the confidence that he should have. As the Secretary stated during congressional hearings in February 1959:

"It was also recognized that the management organization must be disinterested and objective in all its decisions and actions. By their nature decisions in a development program are likely to be controversial. In this program, any possibility of self-serving considerations on the part of the program management could cause delay and loss of confidence in the program."

In order to carry out the technical direction and systems engineering of the Air Force ballistic missile program, it has been necessary that R-W/STL become intimately familiar with the activities and operations of the numerous contractors engaged in research, development, and production for this program. Because of the unique position of R-W/STL in the Air Force ballistic missile program, both the Air Force and R-W/STL recognized the need for special precautions to promote objectively by R-W/STL in its technical decisions and to facilitate acceptance of such decisions by the participating contractors.

An unusual clause was inserted in the R-W/STL contracts prohibiting the development or production by R-W/STL of components for the ballistic missile program. However, as explained below, this clause may not have been fully effective in overcoming the natural reluctance of contractors to provide full cooperation in view of the substantial amount of work performed by R-W/STL in closely related fields.

Furthermore, as discussed below, information developed by participating contractors probably would be made available more freely to a Government staff than to a potential competitor in view of the possibility that such information may lead to valuable patents. If R-W/STL had been restricted from the outset of the ballistic missile program from obtaining title to patents in this program, the natural reluctance of contractors to make information freely available to a potential competitor might have been reduced. However, such a restriction, similar to the hardware ban preventing R-W/STL from fully capitalizing on the knowledge and competence it had obtained in the program, would remove an important incentive for its continued participation in the program. Many valuable inventions have been made by R-W/STL employees under the Air Force ballistic missile contracts, and title to these inventions is vested in R-W/STL. Use of a Government staff to provide the systems engineering and technical direction of the program can reasonably be expected to avoid this deterrent to the full flow of information and simultaneously better assure the continued retention of the necessary capability.

RESTRICTIONS PROHIBITING PRIVATE CONTRACTOR FROM DEVELOPING OR PRODUCING COMPONENTS IN PROGRAMS UNDER ITS TECHNICAL DIRECTION MAY NOT OVERCOME NATURAL RELUCTANCE OF PARTICIPATING CONTRACTORS IN VIEW OF POTENTIAL COMPETITION IN RELATED FIELDS AND FUTURE PROGRAMS

In recognition of the need for special precautions in order to promote a greater degree of objectivity on the part of the technical director in advising the Air Force on technical matters which may naturally affect other industrial contractors, and to facilitate acceptance of technical decisions by the contractors working in the program, an unusual clause was placed in the R-W/STL contracts. This clause, contained in the initial definitive contract, AF 18(600)-1190, read as follows:

"The contractor agrees that due to its unique position in the administration and supervision of the program contemplated hereunder, the Ramo-Wooldridge Corp. will not engage in the physical development, or production of any components for use in the ICBM's contemplated herein, except with the express approval of the Assistant Secretary of the Air Force (Materiel) or his authorized representative."

Similar restrictions appear in subsequent contracts.

While as a result of this prohibition direct competition between R-W/STL and the contractors in the ballistic missile program was generally precluded, R-W engaged in substantial amounts of design, development, production, and servicing of end items in closely related fields, and the Air Force Inspector General has reported that "a number of contractors expressed resentment and criticism of the fact that R-W had been placed in a favored position to compete with older established companies."

B-W/STL AWARDED SUBSTANTIAL AMOUNT OF CONTRACT WORK FOR DESIGN, DEVELOPMENT, PRODUCTION, AND SERVICING OF END ITEMS IN FIELDS CLOSELY RELATED TO THE BALLISTIC MISSILE PROGRAM

Contracts and subcontracts awarded by the Air Force, Army, Navy, and various contractors to R-W/STL from its inception through December 31, 1958, for the design, development, production, and servicing of end items, as distinguished from technical studies, amounted to approximately $61.4 million, as shown below:

The work called for in these contracts and subcontracts in general was not specifically under the ballistic missile program, but did involve work in closely related fields, such as design of hardware for lunar and space probes and development or production of a direction-finder system, an infrared seeker, airborne digital computer, and a telemetry data converter and data checker.

The following instances illustrate the close relationship of the work performed by R-W/STL under these contracts with its efforts in systems engineering and technical direction of the ballistic missile program.

1. R-W/STL received an Air Force prime contract amounting to $4,281,400 for the design and development of a vehicle capable of lunar flight. The payload, known as the Pioneer, was designed and produced by R-W/STL and used in three lunar probe flights. The Thor IRBM which was used as the first stage of these vehicles was developed and the launchings were performed under the technical direction and systems engineering of R-W/STL. All components of the payload including instrumentation, were produced by R-W/STL. Hardware modification responsibility was also assigned to R-W/STL for the second, third, and payload stages which were added to a Thor IRBM to complete the vehicle. 2. A subcontract was awarded to R-W/STL for production of harware in connection with the Titan program. The American Bosch Arma Corp., an associate contractor responsible for the all-inertial guidance system for the Titan, awarded a subcontract approximating $800,000 to R-W/STL for design and fabrication of data processing equipment, including spare parts. Arma had solicited 18 companies for bids on this work and had received two proposals, one of which was from R-W/STL. The R-W/STL proposal was considered by Arma to be technically superior and lower in cost. The Commander, BMD, approved award of the subcontract to R-W/STL on the basis that it "*** is in no way related to the number of missiles produced and has no production follow-on, being a onetime design and fabrication job" and, therefore, did not conflict with the intent of the ballistic missile hardware prohibition.

3. With approval of the Secretary of the Air Force, R-W/STL was awarded a contract by Rome Air Development Center in the amount of $18.6 million for the development and production of the intelligence data handling system for a military reconnaissance satellite program known as the WS-117L. The WS-117L reconnaissance system is composed of the satellite vehicle, the booster, launch facilities, tracking facilities, and a complex communication and data processing network. Lockheed Aircraft Corp., is the weapons system contractor for the WS-117L, and R-W/STL is not responsible for technical direction of this program. R-W/STL was selected after an Air Force evaluation of proposals by it and three large industrial corporations resulted in a determination that the R-W/STL proposal was clearly superior.

In view of the substantial amount of work done by R-W/STL in fields so closely related to the ballistic missile program during the period R-W/STL was engaged in systems engineering and technical direction of the contractors engaged in the program and in view of the likelihood of future competition, the hardware ban placed in the ballistic missile contracts may not have been fully effective in overcoming the natural reluctance of contractors to cooperate and to exchange information freely with R-W/STL.

INFORMATION DEVELOPED BY PARTICIPATING CONTRACTORS IN BALLISTIC MISSILE PROGRAM THAT MAY LEAD TO VALUABLE PATENTS IS MORE LIKELY ΤΟ BE EXCHANGED WITH A GOVERNMENT STAFF THAN WITH A POTENTIAL COMPETITOR The research and development nature of the work in the ballistic missile program provides the contractors engaged in the program with the opportunity to obtain many patents in new areas of great potential significance. The systems engineer and technical director, by virtue of his own research and development, work, as well as his direction of and access to the work of the participating contractors, is in a particularly advantageous position to conceive or reduce to practice inventions leading to valuable patents. Because of the value of this information, participating contractors would more likely exchange information developed in their work with a Government staff engaged in systems engineering and technical direction than with a potential competitor performing this function. As explained previously, a special clause was inserted in the contracts with R-W/STL prohibiting it from the physical development or production of components for the programs under its direction. This clause was inserted to promote objectivity by R-W/STL and acceptance of its decisions and actions by the participating contractors. We believe that the same considerations that led to